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World Bank mulls new ways to combat infrastructure corruption

World Bank mulls new ways to combat infrastructure corruption

WASHINGTON (TrustLaw) - The world needs $70 trillion in infrastructure spending by 2030 to achieve the World Bank’s goal of ending extreme poverty in a generation, a huge sum that can only be raised if governments partner with the private sector, a World Bank executive has said.

This will present new challenges for combating corruption in public procurement, Sri Mulyani Indrawati, managing director of the World Bank, said on Wednesday.

“We are dealing with a dilemma:  How are we going to attract more public-private partnership investment without compromising the quality and the integrity of the projects?” Sri Mulyani asked at a panel discussion ahead of the World Bank/International Monetary Fund spring meetings, which begin on Thursday in Washington.  

As government budgets for development aid shrink and investment needs soar to serve a rapidly urbanising global population, teaming up with the private sector to build hospitals, schools, roads, utilities and other public services will be essential, Sri Mulyani said.

World Bank President Jim Yong Kim underlined that point in a webcast discussion on ending poverty earlier on Wednesday. “There is no question we have to rely on the private sector,” he said. “Official development aid is critical, but we are not going to reach our goal (of reducing poverty) unless we take advantage of all sources of funding.”

Sri Mulyani said the World Bank will have to develop new frameworks and think afresh about how to combat corruption if it is to expand its public-private partnerships. Over the past eight years, they have been used in 154 countries as a way of meeting investment needs.

"From the World Bank’s point of view, we are faced with operating in many countries where the risks of corruption are very high, but at the same time, we do not want to punish the poor people by not being there,” Sri Mulyani said. “How can we do more?  How can we provide the platform that is open and safe, and yet have the private sector in the partnership?”

Transparency advocates have pushed for publishing contracts online, so that governments and companies can be held accountable for delivering publicly funded projects and services. Check My School  in the Philippines, for example, allows communities to monitor whether teachers turn up, school books arrive or desks are delivered, as well as report back using social media tools. But this method alone cannot solve the problem in the expanding environment of public projects, Sri Mulyani said.

BANKER GUIDELINES?

Paul Clifford, a director at Standard Chartered responsible for project finance in the Americas, suggested lenders can play a role since they finance the private companies bidding on contracts. They could draw up guidelines for combating corruption - something similar to the Equator Principles which assess and manage environmental and social risks associated with project financing.

“We do take these things very seriously, but there probably is a tipping point where financial markets need to come together on integrity and transparency,” Clifford said at the panel discussion.

Today bankers apply Know Your Customer rules, under which they check whether someone has a criminal record, is wanted by investigating authorities or has political connections that might make their financial activities questionable, for example. But these rules are often criticised for being inadequate and applied too lightly.

Providing a clearer framework for public-private partnerships could also help bankers agree to provide financing for construction companies wanting to bid on projects, which in turn would increase competition and reduce costs, Clifford said.

Rashad Kaldany, chief operating officer of the International Finance Corp, the World Bank’s financing arm, said the biggest determinant of success in the IFC’s 350 projects worldwide is the quality of the project sponsor - its skills and ethical practice, and the absence of corruption.  

“When projects fail, it usually is related to lack of integrity by the sponsors, which is why we put enormous importance on that when we get into projects,” he said.